Rockwell Automation, Inc.

Thank you for holding and welcome to the Rockwell Automation quarterly conference call. I need to remind everyone that today's call is being recorded. Later in the call, we will open up the lines for questions. If you have a question at that time, please press star 1. At this time, I'd like to turn the call over to Jessica Caracos, Head of Investor Relations and Treasurer. Ms. Caracos, please go ahead.

Good morning, and thank you for joining us for Brockwell Automation's third quarter fiscal 2019 earnings release conference call. With me today is Blake Moretz, our chairman and CEO, and Patrick Gores, our CFO. Our results were released earlier this morning, and the press release and charts have been posted to our website. Both the press release and charts include reconciliations to non-GAAP measures. A webcast of this call will be available at that website for replay for the next 30 days. Before we get started, I need to remind you that our comments will include statements related to the expected future results of our company and are therefore forward-looking statements. Our actual results may differ materially from our projections due to a wide range of risks and uncertainties that are described in our earnings release and detailed in all of our SEC filings. So with that, I'll hand the call over to Blake.

Thanks, Jessica, and good morning, everyone. Thank you for joining us on the call today. Before I start, I first want to thank Steve Edsel, who has transitioned from investor relations back to his treasury duties full-time. He has served us well in the IR role for the last few years. I also want to welcome Jessica Caracos as our new head of investor relations. Jessica brings a wealth of experience from both the sell side and buy side, and we're excited to have her on board. With that, let me start with some key points for the quarter, so please turn to page three in the slide deck. Globally, organic sales were up half a percent, lower than we expected. In general, we saw strong growth in our longer cycle end markets, while shorter cycle end markets weakened. Organic sales growth was led by heavy industries, including oil and gas, pulp and paper and mining, as well as life sciences, each of which grew double digits. In oil and gas, we saw strong growth in all regions as our customers are focusing on productivity, improvements, and digitization initiatives. Pulp and paper continued to do well for us, with most of the growth this quarter coming from North America. Strong growth in mining was driven by CapEx investments in iron ore and copper electric vehicle-related commodities, and investments around digitization. Life Sciences was another standout vertical for us this quarter. Our offerings aligned well with industry trends, including personalized medicine and cybersecurity. Offsetting the longer cycle growth in the quarter was weakness in shorter cycle end markets, including automotive, semiconductor, and food and beverage. Automotive was down about 10% year over year and slightly up sequentially versus Q2, in line with our expectations. Semiconductor in the quarter was weaker than expected, impacted by an overall slowdown in the global semiconductor market. Food and beverage was down low single digits. Although the industry continues to focus on modernization to drive productivity, we saw some project delays. Logix was down 3% organically, largely due to automotive weakness. Process control sales grew 3% organically, led by strength in longer cycle and markets. Information solutions and connected services continue to do very well, from double digits in the quarter. This is a measure of the new value being delivered to customers in all industries. This business increases recurring revenue streams and includes FactoryTalk Innovation Suite and MES software, as well as high-value services such as remote monitoring to enhance cybersecurity and optimize production. Commenting on regional performance in the quarter, North America was about flat organically. Pulp and paper and oil and gas had strong double-digit growth while automotive, semiconductor, and food and beverage declined. EMEA was up 2% in the quarter, led by life sciences, oil and gas, and tire. While Asia declined 1%, China grew low single digits. Latin America sales were up 6%, led by mining and oil and gas. I'll make a few additional comments about our Q3 results. Adjusted EPS was up 11 percent, and segment operating margin expanded 130 basis points year over year. The increases in adjusted EPS and segment operating margin include a benefit from lower incentive compensation expense. Patrick will elaborate on our third quarter financial performance in his remarks. Let's move on now to guidance for full-year fiscal 2019. We believe that uncertainty with respect to global trade is impacting some customers' investment decisions, particularly those related to the timing of capital investments. Taking into account our year-to-date results, we now expect our fiscal 2019 organic sales to be up about 1.5% year over year. Including the impact of currency translation, we now expect reported sales be about $6.6 billion. We're reducing the adjusted EPS guidance range to $8.50 to $8.70, which includes aligning spending to the current market environment. As Patrick will discuss in a few minutes, this guidance does not include the impacts of the Centsia joint venture. Before moving on, I want to mention that yesterday, our board authorized an additional $1 billion for share repurchases. A strong financial position allows us to deploy capital in line with our priorities, organic growth, inorganic investments, dividends, and share repurchases. Let's talk a little more about our organic and inorganic investments. Regardless of what is going on in the macro environment, we're confident that we are executing well and we see evidence that we are gaining share and making the right strategic investments to drive profitable growth. Beginning with our core business, we continue to invest in our logics architecture and connected smart products. These enable us to capture a broader set of opportunities across discrete, hybrid, and process end markets. Customers are telling us that our latest generation logics processor outperforms our biggest competitors, It is also the industry's first certified secure controller, adding a whole new level of security on the plant floor. In high-performance motion control, utilizing a highly differentiated independent cart technology, we worked with KUKA to secure a multimillion-dollar order in Q3 from a large global automotive manufacturer, beating European competitors that lack this capability. We're also increasing our penetration within process-oriented end markets, like oil and gas, which continues to show strong growth for us and is the largest automation market. We're going after this market organically by building up our process capabilities both within Logix and our FactoryTalk analytics platform, as well as inorganically through our Sensia joint venture with Schlumberger. The new value from information solutions and connected services is another way to win across all industries. We're already seeing this acceleration in markets like life sciences, where we have grown strong double digits over the last two years and are gaining significant market share. Here, our differentiation in pharma suite MES, cybersecurity, and factory talk analytics have resulted in many recent deals going our way, including a recent win with a very large medical device company against a traditionally strong process competitor, where our offering was seen as the best technology to increase overall equipment effectiveness. Our analytics and MES differentiation also drove a key automotive win in Asia, where our software will be used on top of a competitive control platform. We won because our solution was more reliable, We had deeper domain expertise, and our digital roadmap was better. EMEA and Asia are highly strategic regions for us, and we plan to invest both organically and inorganically to strengthen our reach. These and other wins give us confidence that no one is better positioned to benefit from the global convergence of IT and OT than we are. And we're actively directing spending in our operations, and through capital deployment to the areas of highest return to make that happen. We look forward to speaking in greater detail about these initiatives at our upcoming Investor Day in November. Now I'll turn it over to Patrick to provide more detail around our Q3 results and our 2019 sales and earnings guidance.

Thank you, Blake, and good morning, everyone. I'll start on slide four, which provides our key financial information for the third quarter. As Blake mentioned, sales slowed down in Q3 with reported sales down 2%. Organic growth of 0.5% was weaker than expected, and currency translation reduced sales by 2.5%. Segment operating margin was 23.8%, expanding 130 basis points compared to last year. The increase in segment margin was mainly due to lower incentive compensation expense, partially offset by higher investment spending. Our incentive compensation plan reflects our strong pay for performance culture and track record. We have a company-wide incentive plan that covers most of our employees globally, with bonus earned being very aligned with financial performance of the company. To reflect the revised outlook for full-year fiscal 19 financial performance, we lowered our estimates for bonus expense. The total adjustment booked in the third quarter was about $30 million, which represents about 170 basis points of segment margin. About two-thirds of the $30 million is booked in the control products and solutions segment, the balance in the architecture and software segment, and general corporate net. Looking at our performance through the first three quarters of the fiscal year, segment operating margin is 22.7%, up 80 basis points year over year. Earnings conversion ex-currency is 35%. and adjusted EPS is up 11%. General corporate net expense in the quarter of $24 million was down $9 million compared to last year, mainly as a result of lower functional expenses, including lower incentive compensation expense. Adjusted EPS of $2.40 was up 11% compared to the third quarter of last year. The year-over-year increase in adjusted EPS is mainly the result of lower incentive compensation expense, higher organic sales, and a lower share count, partially offset by higher net interest expense. A lower tax rate also contributed to the increased year-over-year adjusted EPS. Free cash flow performance was $323 million in the quarter, or 114% of adjusted income. A few additional items that are not shown on the slide. With respect to tariffs, the net impact on financial results in the quarter and through three quarters is neutral with the higher costs being mitigated through a combination of supply chain actions, negotiations with vendors, and targeted price increases on affected products. Average diluted shares outstanding in the quarter were 118.6 million. down 7.2 million or about 6% from last year. We repurchased 1.5 million shares in the quarter at a cost of $246.3 million. Through June 30, we are on pace to get to our $1 billion full-year target for share repurchases. At June 30, we had $333 million remaining under our previous share repurchase authorization. As Blake mentioned, our board has approved an additional $1 billion share repurchase authorization. Slide five provides the sales and margin performance overview for the architecture and software segment. With a 1.9% organic sales decline, this segment had weaker organic growth performance compared to the company average, as it generally is overweight on shorter cycle end markets and does not include any of our solutions and services businesses. For the quarter, segment margin decreased 60 basis points year-over-year and remains about 30%. A margin tailwind from lower incentive compensation is more than offset by the impact of lower sales and higher investment spend. Moving on to slide six, control products and solutions. This segment had 2.7% organic growth in the quarter. The product businesses in this segment declined about 2.5% year-over-year, similar to the architecture and software segment, while the solutions and services businesses in this segment grew about 6% organically. Operating margin for this segment increased 320 basis points compared to Q3 last year, primarily due to lower incentive compensation and higher organic sales partially offset by higher investment spending. Book to build performance for our solutions and services businesses in this segment was 0.98 in Q3, reflecting an increase in project delays. The next slide, seven, provides an overview of our sales performance by region. Blake covered most of this in his slide, in his remarks, so I'll move on to slide eight, guidance. As Blake mentioned, we are reducing our full year expected organic sales growth guidance to about 1.5%. This implies a Q4 organic sales decline of about 3% to 3.5%. We now project fiscal 19 sales of about $6.6 billion. We continue to expect strong segment margin of about 22%. General corporate net expense is expected to be $95 to $100 million for the full year, similar to our April guidance. We believe the full year adjusted effective tax rate will now be about 18.5%, half a point lower than our April guidance, and mainly as a result of favorable discrete tax items and a change in a geographic mix in global pre-tax income. We continue to target $1 billion in share repurchases, and we now expect average fully diluted shares outstanding to be about 119.3 million for fiscal 19. We are revising our adjusted EPS guidance range to $8.50 to $8.70. At the midpoint, this is a $0.40 decrease compared to our April guidance. Our updated range reflects the impact of lower organic sales growth. partially offset by additional spend reductions, lower incentive compensation expense, and a somewhat lower tax rate. Compared to fiscal 2018, the full-year midpoint represents a 6% adjusted EPS growth on slightly lower reported sales. And we continue to expect free cash flow conversion of about 100% of adjusted income. Before I turn it over to Jessica, I'll make some comments about CENCIA. We are waiting for some customary regulatory approvals and continue to expect CENCIA to close this calendar year. No impact associated with CENCIA is included in our current guidance. Assuming the transaction closes this fiscal year and including an associated tax benefit, we now expect the adjusted EPS impact to fiscal 19 to be about neutral. With that, Jessica.

Thanks, Patrick. Before we start the Q&A, I just want to say that we would like to get to as many of you as possible. So please limit yourself to one question and a quick follow-up. Thank you. Operator, let's take our first question.

Your first question comes from the line of John Inch from Gordon Haskett. Your line is open.

Good morning, everybody. Morning. Morning. Morning. The down 3% core growth for the fourth quarter, are you guys assuming that this is just a function of projects being further pushed out, or are you actually assuming there's embedded deterioration, say, in both distribution and projects in terms of the cadence?

So looking at the different industries, John, we're expecting that for the full year that automotive overall is going to be down about 10%. We see some sequential improvement as we have seen some purchases beginning in some of the projects that we've been tracking, but we're still looking at about 10% for the full year. I think the stories in Q3 that inform our outlook for Q4 are that in the quarter, while automotive performed about as expected, we did see weaker than expected performance in areas like semiconductor, food and beverage weakened a little bit, and then chemicals, power, some of those areas. weaker than expected performances, and Q3 informed the outlook implied with Q4.

I think, Blake, you had talked about you had thought there were going to be some automotive turnaround projects or model changes coming through in the second half. Is that still part of the calendar year? Is that still part of the expectation, or does that look like it's been deferred as well?

No, actually, purchasing has started on a lot of those projects that we were tracking, the ones that we've been talking about that included some line of sight. We've seen early purchases there, so we've won the ones that we expected to, plus a little bit more. It's just not clear whether the majority of the volume from those purchases is going to happen in Q4 or out into 2020.

Just lastly, China stepped down a little bit. It's still pretty decent given the overall sort of macro, but is there any color you could give us vis-a-vis end markets in China, say heavy industry, infrastructure, auto, consumer, stuff like that?

Sure. We've talked previously about the impact of some of the stimulus in China, and we saw it again in Q3, so mass transit. water, wastewater, which would be most impacted by government stimulus. Those were strong performers for us in China in the quarter.

And was anything incrementally weaker that you would call out?

Auto was a little bit weaker in China in the quarter. We had some winds in different areas, and we'll talk about that when we talk about our information solutions and connected services, but overall, auto in China weakened.

Got it. Thanks for the color.

Thanks, John. Thanks, Jen.

Your next question comes from the line of Julian Mitchell from Barclays. Your line is open.

Hi. Good morning. Good morning. Maybe just give us a little bit of color as to, you're guiding for organic sales to dip into the September quarter. How does this environment feel today compared with when you've gone into other sales downturns in the past? And are you taking much mitigating action on the assumption that this sales decline could last several quarters if it's consistent with history?

Yeah, Julian, we haven't assumed that this is a big, the beginning of something that's going to last multiple quarters. What we've also seen historically is even during continued periods of expansion, we have seen times where that growth has leveled off for a quarter or two. However, we have taken cost reduction measures, and you saw the impact of that in Q3. And we're actively looking at other ways both to match our spend with market conditions, as well as take the opportunity to more rapidly reinvest and look at ways to direct resources to the areas that are going to be most important in the future. So we have taken cost reductions. We're looking at areas that would be opportunities going forward, and we're watching the development of this quarter Q4 very closely.

Thank you very much. And then my quick follow-up would just be around the process business. I think your revenue growth in that slowed to about 3%. You'd been running at 10% growth in the March quarter. Should we assume that that also dips into negative year-on-year territory in the September quarter, and any color associated with that on the backlog in solutions and services?

Yes, solutions and services backlog remains slightly up year over year, and we do continue to see growth in some of the key areas driving processes. such as oil and gas and mining. Some of the project delays that we saw in Q3 impact process, I would say the project delays that we saw were split between, you know, the longer cycle that typically makes up most of those projects, but it was also colored by a fairly significant portion of delays in shorter cycle businesses as well.

Fantastic. Thank you very much. Thanks, Julian.

Your next question comes from the line of Joe Ritchie from Golden Saks. Your line is open.

Thank you. Good morning, everyone. Morning, Joe. Blake, can you maybe just talk about any discernible trends that you saw as the quarter progressed? For example, we've been hearing from a lot of companies that June had turned out to be worse than expected. And so anything on the trends that you can tell us about?

Yeah, but not that. Actually, for us, April and May were weak, and June got a little better sequentially. So, in the quarter, we saw it finish a little bit stronger.

Were there any specific end markets that were driving that?

I can't pick any in particular, except perhaps chemical. may have followed that a bit, where it started the quarter out weaker. And obviously, since chemical kind of sits a bit in the middle in terms of the applications that we play in, we watched that fairly closely, and that started to improve a bit as the quarter went on. I would make the other comment that for our quarter, it doesn't progress in a linear fashion. So the last month of the quarter is always the strongest, and so we can't extrapolate the way that a quarter has started out and just run it out and make predictions about the full quarter.

Got it. Okay. And then maybe my follow-on question there is on just looking at the CP&S margins, you know, clearly really strong, and you guys called out incentive comp, as a big driver. Was there anything else that impacted the margins favorably this quarter? And then, you know, how should we be thinking? I know that you're stepping down incentive comp as well in 4Q, but what, you know, what should we be thinking about it like a normalized number, I guess, from an incentive comp standpoint on the go forward?

Okay. Joe Patrick here. So with respect to CP&S segment margin, The largest part of the year-over-year increase is related to incentive compensation. The segment, of course, had some organic growth in the quarter, which helped as well. And then currency was just a slight tailwind, less than half a point of margin for that segment. In terms of incentive compensation, the way that you can think about it is a fully funded incentive compensation program. Plan for Rockwell Automation is about $100 million. And the current guidance for fiscal 19 is about 60% of that.

Okay, got it. Thank you both. Thanks, Joe.

Your next question comes from the line of Steve Tussle from J.P. Morgan. Your line is open.

Hey, guys. Good morning. Good morning, Steve. I just wanted to talk about the – food and beverage is kind of a broad way to characterize that end market kind of vertical. Does that include some of the packaging, machinery types of guys that are out there? What are you – is this like a lot of the machine tool, like the bottling guys and that kind of stuff, or is it more – you know, enterprise business with, you know, the crafts of the world and things like that. Can you maybe just kind of like break out the food and beverage dynamics a little more?

Sure. So food and beverage includes both. So it certainly includes the global end users, so the crafts and the Mondelez, Nestle, you know, that would be an example of a few of those, ABI. It also includes the packaging, the machinery builders. So you're looking at the packaging OEMs around the world. That's a fair part of our business in Europe, for instance, as well as in the U.S., and it includes that part of the business as well. They both They both work together, and we have a strong focus at both ends of it, what kind of performance we can provide to the machinery builders, as well as how it works together in an integrated system at the user.

But I guess when you talk about the performance this quarter, kind of exiting the year, I guess just simply, how did the OEM business do? I know you guys kind of characterize the OEM business, and within that, this kind of packaging, food and bed vertical, where I think you serve a lot of these small and medium-sized machine builders so well. How did that business do?

So, Steve, the way you can think about it is our global OEM business was down about mid-single digits, and within that, packaging – was down high single digits in the quarter.

And how fast did that grow in 18?

Probably mid-single digits because consumer was about mid-single digits last year. Okay. That's great.

Thanks, as always, for the call. I appreciate it.

Thank you.

Your next question comes from the line of Jeff Sprague from Vertical Research. Your line is open.

Thank you. Good morning, everyone. Just two from me, actually. Just thinking about food and beverage also being kind of broadly consumer-oriented, I'm wondering if you could speak to anything else that you're seeing in consumer-related markets, or did those happen to kind of track in line with the segment averages?

Sure. I'll make a couple of comments, and then Patrick might have some more. When we talk about consumer broadly, we think of three areas underneath that typically. It's food and beverage, it's home and personal care, so think of tissue and so on, and then life sciences. Food and beverage and home and personal care perform roughly similarly, and I think our outlook is similar. But life sciences is really the stand-down in terms of strong double-digit growth.

Yeah, so within consumer, Jeff, as Blake mentioned, life sciences, good double-digit growth. Home and personal care up mid-single digits in the quarter. And so it's really food and beverage, which represents about 20 points out of the 30 of consumer, which is dragging down our performance in consumer.

Great. Thank you for that. And then just on the comp expense, so it sounds like Q3 you had a year-to-date true-up. There's another $10 million in Q4. My question would just be then on kind of the investment spend. Does investment spend on a year-over-year basis actually increase or decrease? Could you give us a little bit of color on that?

The way you can think about our investment spending, and we exclude incentive compensation for that metric. In our current guidance, our investment spending grows about 2% year over year, a little less than that, so a little bit more than our revised organic growth rate for the full year. In Q4, we expect it to be down year over year.

Thank you.

At the same time, I would say that where we are making adjustments and spending is more on discretionary items, not on the R&D side. For example, in Q3, R&D was still up 8% year-over-year.

Okay. Thank you very much. Thank you. Thanks, Jeff.

Your next question comes from the line of Richard Eastman from Baird. Your line is open.

Yes. Good morning. Blake, could you just speak for a minute or two to the book to bill at 0.98? That's significantly less than the seasonal book to bill would suggest it should be. I presume a lot of that is in heavy industries. And I'm curious, you referenced project delays impacting the book to bill, but your line of sight on those projects, in other words, they weren't booked in the quarter, but you have a healthier view of the line of sight on projects. that are out there? Is that how we kind of interpret your comments?

I'd say we continue to have good visibility to those projects that didn't close in the quarter. And as we look at the reasons why, the obvious question is, is this just a precursor to them getting pushed out further or canceled? Or were there unique, plausible reasons why they didn't go in the quarter, but they could come back in the near future, including some in Q4. And the latter was our, based on our review, that was the sense of the majority of those that they were delays, but they were unique, plausible reasons in each case that caused them to push out in the quarter and not necessarily being gone. I mentioned before, that there's a little higher component in those project delays of the shorter cycle businesses. So think of it this way, the percentage of delays of shorter cycle business in that book to bill was higher than the total bookings of the solutions and services business.

So again, you're feeling as we track into the first half of fiscal 20, is that some of this could drop in, higher percent short cycle. It doesn't necessarily mean that, again, you're cautious, but it doesn't necessarily mean that you're planning on a first half of fiscal 20 that is down. That's right.

That's right. And while we don't wait for November to give the guidance, we're watching Q4. But our front log, our quoting activity remains healthy.

Okay. Okay. That's what I was getting at. Okay. And just one last question. Could you just define, or Patrick, could you give us kind of a pricing number here, just gross price capture in the quarter? Sure.

We're at about 1.5% price realization through three quarters and for Q3 about the same. It's about 1.5%, which includes, Rick, the price we get associated with the tariffs. And so you may recall that we implemented targeted price increases on products impacted or affected by the tariffs. Yes. And so the price realization this year, one and a half, is a little bit larger than prior years, but includes that price associated with the tariffs actions.

And that's not a surcharge, correct, or is it? In other words, will that come off part of that?

The intention, whether the price increase was to neutralize the impact of tariffs, so not to make money out of that. And so the expectation is that if tariffs would be eliminated, that at some point those price increases would also be adjusted. And the objective being to neutralize the impact of tariffs.

Gotcha. Okay, great. Thanks again for the questions. Thank you, Rick.

Your next question comes from the line of Nigel Coe from Wolf Research. Your line is open.

Thanks. Good morning. Appreciate all the color, as always. I've got to say, I'm struggling to get to your 4Q EPS guidance at the lower end of the range, and the only way I could get there would be if ANS is significantly weaker than the 3% to 4% organic year-over-year you're pointing to for 4Q. Is that how you're thinking, that ANS could be down you know, mid to high school digits organic with, you know, CPS probably flat to slightly up. Is that sort of how you're building up 4K?

Nigel, to get to the low end of our current guidance, that's not an unreasonable way to look at it.

Okay. Okay. So, directionally, that would be accurate. And I think, Blake, you mentioned, you know, down quarters is not unusual within the context of an up cycle, and we certainly saw that in FY16. are we in that sort of situation where we have several quarters of negative growth to cycle through before we get back to growth? Or do you think that there's something here that can snap us back to growth quicker? I'd appreciate your thoughts there.

Well, as we talked about, the continued uncertainty that we've been mentioning for quite a while, we think it is impacting investment decisions at this point. And so a reduction of that uncertainty, some stability in the outlook, would certainly help. In terms of the fourth quarter, it would have to be in short-cycle businesses, right? So, you know, some improvement in longer-cycle outlook might impact orders, but it would take a while for that to flush out as revenue and profit. In terms of the duration, of what we're seeing currently. Again, we're going to be looking very closely at the development of the quarter. We're going to be looking at the macro. Progress on trade would certainly help, but we're not counting on that at all.

Just to touch on that last point, channel clearance would be a factor that might snap things back quicker. Can you just maybe comment on within ANS how you're selling this through sales and tracking right now?

Say again. Nigel, please.

I'm just curious if you're seeing any, I guess to make the question a little bit clearer, are you seeing inventory headwinds in your ANS channels?

Well, we, as you may know, we have really good visibility into what our distributors carry of our product. That's particularly the case in North America. inventory changes have not been a material impact to our results, including whether it's ANS or the other segments on the product side.

Yeah, we're closely aligned. We're closely involved with our distributors as they replenish inventory, and there's nothing different that's being done there.

Okay, gents, thank you very much. Thank you.

Your next question comes from the line of Robert McCartney from Stevens. Your line is open.

Good morning. Can you hear me? You can.

Hey, Rob.

How are you doing today? Yeah, I guess the first question is just expanding on some of the questions around fiscal 20, and I know you don't want to give guidance for fiscal 20 as much as we're going to try. Could you just talk about maybe the compares across auto and some of your other businesses where you might think that you're kind of, you know, you could get closer to bottom here, and how do we think about, how do we just think about some of as we step into 20, you know, some of the comparisons where you feel better versus more limited visibility, better versus worse?

Yeah, so let's start with auto. I mentioned we saw a little bit of sequential growth, and importantly, the results were stable with our expectations. You know, What would give us more concerns is if projects that we've been talking about through the year went away. That's not what happened. And, in fact, we're starting to see a little bit of purchases associated with those. The EV companies, while we continue to see that as a relatively small of our overall business, they're going to bring vehicles to market, and they're going to need automation to do it competitively. and we continue to be highly engaged there, as well as with traditional vehicles as they look at new models and new places to build them. So we see that continuing, and as I mentioned before, the front log is fairly healthy. For other longer cycle businesses where we would have visibility that might go out across multiple quarters, things like oil and gas and mining, there continues to be good activity there. You saw that reflected in our current results. And so through the fiscal year, we don't see changes there. The shorter cycle business, of course, it's more difficult to look at the outlook. And we'll have more details on what our view is informed by the quarter in November.

Okay, now that's helpful, and I'd rather light a candle than curse the darkness. So why don't we talk about the continued strong double-digit growth at Information Solutions and the Connected Services? And it looks like PTC last night, while having a challenging quarter in the relationship with you, actually had a pretty decent quarter. Maybe you could talk about the metrics and key wins there and how you're feeling about that collaboration.

Happy to, and glad to see you lighting a candle, Rob. It's been good, and we are probably a little more excited even about the relationship than we started a year ago on this journey. So we continue to see good winds come in across industries and across geographies. There was a wind, and BTC talked about it last night with Euphoria. Expert Capture is at a big tire company in Korea. We like Vuforia because it's a differentiator. Very few of our competitors have any sort of augmented reality offering, and we're selling it in somewhere around a third of our factory talk innovation suite wins currently. We continue to see wins in Life Sciences, I talked about the double-digit growth there, and the combination of our basic control in Life Sciences, the software that we have had for some time, specifically MES, plus the new factory talk analytics that were brought to market, the PTC offerings, really puts us in an open field in an industry that continues to grow very strong. So I'm happy with it. We're going to talk, and one last comment, we're going to talk a lot more in November about the comprehensive things that we're doing as an organization to accelerate our move to more recurring revenue streams and more proficiency in managing a growing software component of our overall business. It's certainly not just sales. It's about our business model. It's about our IT infrastructure. And we're going to talk a lot about that in November.

Well, I'll leave it with this. I think you won something with Eaton, and I don't think they believe in the IP of the PLC, so I think that's a very notable win for you. Yeah. Thanks, Rob.

Your next question comes from the line of Deepak Rigvargan from Wells Fargo. Your line is open.

Hey, good morning. Two questions for me. First, can you please update us on your regional growth outlooks and, you know, just talk about how your views have changed inter-quarter based on what you're seeing across regions?

So, we continue to see Latin America as providing growth in the year. We also see EMEA for the full year of seeing growth in the low single digits. In Q3, North America and Asia were the regions that were a little weaker than we expected.

Yeah, the way you can think about it, Deepa, is that per our current guidance for the full year, all regions are a little bit lower than the prior guidance. North America went from mid-single digits, a little bit below the company average, to low single digits. So did EMEA and Asia. And Latin America is still teens. It's still about 10% rather than the mid-teens that we were expecting before. So our outlook in every of the regions has come down a bit.

Got it. Thanks for the call. Follow-up from me. Blake, you talked about shop cycle weakness a few times now. What are some of the conversations you're having with your clients in those markets with regards to what the trepidation is or what their recovery expectations are? And curious if you are surprised based on your discussions, if you're surprised by the duration or magnitude of the current weakness. Thank you.

Sure. No, I think in some part we're seeing the continued uncertainty over trade and tariffs that is starting to weigh on investment decisions, particularly around capital. We see these customers, even short cycle businesses, that are continuing to look for ways to improve productivity on top of their basic production. And I think that's part of what's contributing to the continued strong growth of information solutions and connected services. But in terms of capital, as these customers weigh the prospects for near-term demand on those shorter cycle products, that's what we're seeing. And again, as we went through and looked project by project at the delays, the reasons that are being given are specific and plausible as opposed to some general precursor to further push-outs and cancellations.

Your next question comes from the line of Andrew Alplowski from Citi. Your line is open.

Hi, good morning. It's Vlad Bistrichi on for Andy.

Good morning, Vlad. Good morning.

So just following up on that last question on delays and your comment that there's specific and plausible drivers of the delays versus necessarily precursor to more push-out and cancellations, I guess what are you hearing from your customers in the context of tariffs and uncertainty that gives you confidence that these are transitory delays versus something that could linger and be more widespread?

I think these companies are doing things similar to what we did and continue to look at coming into the year. They're looking at restacking their supply chains to deal with the information we have in terms of tariffs. There is some movement of where products are being built, who are the sub-suppliers of those various products as people are trying to get to where we are, and that is to neutralize the impact of those tariffs on their cost inputs. And so that's a lot of work. These things, the decisions aren't made overnight, and so being able to react to the current environment but in a way that won't have to be undone, you know, in some short-term time horizon. That's the kind of uncertainty that we're talking about that we've dealt with and that our customers are dealing with.

Okay, that's helpful. And then if I could shift to CP&S for a minute. You talked, I think you said solutions and services within the business was up 6% organic in the quarter. Obviously, you guys have had some very good momentum there. So can you remind us, one, how big that business is within CPNS and also just your visibility to, you know, continued mid-single-digit growth there?

The way you can think about it, Vlad, is within control products and solutions, the solutions and services business is about two-thirds of that segment.

And I think, just to peel it back a little bit further, so that includes the longer cycle projects. For us, the average duration of some of the oil and gas projects, for instance, might be five or six months from the time we get the order to the time that we ship it. It also includes the services, which would include the, say, shorter cycle repair operations, things that track product businesses. But also, importantly, the growing connected services portion of that as well that often attends those projects, things like remote monitoring, network consultation, and things like that. So it's a mix of those defined scope projects as well as high-value services, and then also the engineer-to-order business, so motor control centers and things like that. All of that contributes to that two-thirds number that Patrick gave of the overall CP&S segment.

Okay. That's helpful. Thank you. I'll hop back in the queue.

We'll take one more question.

Your last question comes from the line of Nicole Blase from Deutsche Bank. Your line is open.

Yeah, thanks. Good morning. Good morning. So I just want to dig into 4Q organic a little bit more. So you said that things actually got a little bit better in June sequentially. I guess, does July corroborate that 3% to 3.5% organic decline? Could there be some conservatism baked into that? I'm just having a hard time understanding why things get so much worse in the fourth quarter, given the 3Q organic trend and the comment that you made about the quarterly progression.

Yeah, Nicole, I'll make a comment, and then Patrick might want to add as well. You know, as much as we would like to be able to extrapolate out performance through the quarter that we're reporting on and then take a peek at the first days of the next quarter, we can't apply a linear correlation to that. As I mentioned before, June is the strongest quarter. Typically, we were encouraged as we looked at the development of Q3, but we can't draw conclusions that inform our outlook based on that. And looking at the early July performance, that helps inform the outlook. It's one of the factors that we take into account as we look at Q4, but we just can't draw a straight line with it.

Okay, got it, Blake. That's helpful. Thanks. And then just a clarification question on the investment spending. So, Patrick, I know you said up a little bit less than 2% for the full year. Just in dollar terms, can you clarify? I think previously you were saying up $50 to $55 million for the full year. What does that mean in dollar terms versus the prior guidance that it's on a clear apples-to-apples basis?

About $35 to $40 now.

Got it. Thank you.

Okay. Thanks, Nicole.

There are no further questions. I turn the call back over to the presenters.

So just to summarize, the quarter saw a sharp difference in performance between shorter cycle business and longer cycle project-oriented business. I'm happy with how the market is embracing the Rockwell offerings that add innovation and new expertise to help our customers be more productive. This is important regardless of the macro environment. We also continue to look for ways to be more productive in our own operations by using all of our strengths and directing resources to the initiatives that best accelerate our strategy. That begins with our highly engaged employees and partners who are committed to their roles in this journey. They bring the connected enterprise to life every day at our customers and in our own operations, and I thank them all.

That concludes today's call. Thank you for joining us.